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Trade Libel - Elements of the Cause of Action and Defenses Available

Trade libel is defined as the publication of a false statement of fact that is an intentional disparagement of the quality of the services or products of the plaintiff’s business and that result in pecuniary damages to the plaintiff. It constitutes a business tort and allows the injured party to seek both compensatory damages and punitive damages. (The reader is advised to read the article on Torts, Negligent and Intentionalfor a background discussion of torts in general and punitive damages in particular.)

Clearly normal competition is not only allowed but encouraged in the United States and efforts to restrict competition are themselves, illegal. The difference between trade libel and allowed competition is the knowing falsity of the statements made and the intent to use that falsity to achieve economic advantage.

This article shall discuss the basic elements of that cause of action and the remedies normally available to the injured party.

What Are the Elements of the Cause of Action?:

1. The defendant must have “published” an untrue statement of fact. “Published” means communicated same or allowed the communication of the statement to third parties. While there is a great deal of law in slander as to what constitutes a publication and whether a negligent publication can allow a cause of action, the courts normally hold that if you intended to publish or if you reasonably could have expected the communication to be published, you are liable.

Remember “published” does not mean publishing a written paper or book. It simply means communicated. If the communication is oral, it is slander. If the communication is written it is libel. Either one can allow a cause of action.

Thus, if I post in a public place, such as a web page, information that I know will be examined by others, that is publishing even if I do not expressly tell people to open that page. Thus, if I write a letter to a governmental agency thus have it privileged but send a copy of the letter to an addressee who I know will spread the letter around, that is publishing. Thus if I loudly make comments about you that I know will be overheard, that is publishing.

2. The statements or written communications must be untrue. It is an axiom of the law that truth is an absolute defense to claims of slander or libel. (This is not necessarily true for other related torts such as invasion of privacy or intentional infliction of emotional distress.)

3. The defendant must have made the communications knowing they were false or with reckless disregard of the truth. (Leonardini v Shell Oil Co. (1989) 216 CA3d 547.) Reckless disregard of the truth is determined on a case by case basis but essentially means that no reasonable person would have considered the defendant’s fact finding as acceptable practice prior to publishing the untrue statements. A typical situation is that the defendant claims the product is unsafe without either testing the product or investigating the claims of lack of safety in any verifiable manner.

4. The communication must have resulted in pecuniary damage to plaintiff. Plaintiff must have loss of business or the plaintiff’s business have been significantly damaged in reputation to the extent that loss of future business may be proven.

5. The statement must have been more than a statement of opinion. It must be a statement of fact. Thus, if someone expresses an opinion that your products are poorly made and possibly unsafe and makes it clear it is an opinion that is unlikely to be held to be trade libel. Compare two different types of communications: “In my opinion, the oil is likely to cause harm to your engine,” versus, “The oil is likely to cause harm to your engine.” The latter, if untrue, would be trade libel. The former may not be. Published statements of opinion do not constitute trade libel: they must be statements of fact which are untrue.

The Necessity of Proving Actual Damages

Unlike some torts in which “general damages” can be proven, in trade libel it is necessary for the plaintiff to prove a direct proximate monetary result of the libel which harmed the plaintiff’s particular business. Typical slander or libel causes of action (see our article on Torts, Negligent and Intentional) protect the reputation of the plaintiff thus general damages can apply but trade libel protects only the business, thus direct effect on the business must be demonstrated. Leonardini v Shell Oil Co, supra. The tort concentrates on reputation of a party’s goods or services as distinguished from the tort of defamation which focuses on an individual’s reputation.

Typical Defenses

The essential elements above can all be challenged by the defendant, to wit, defendant can argue that the statements were not made; were not false; were not intentionally false or made with reckless disregard of the trust; or caused no direct harm to plaintiff’s business.

If statements are either ambiguous or susceptible of an innocent meaning, the plaintiff must prove that innuendo or common sense would have made them disparaging. (Nicols v Great American Insurance Company (1985) 169 CA 3d, 766.) Jokes about a product have resulted in causes of action against a comedian but the court found for the comedian when the plaintiff wine company failed to establish that the comedian’s remarks about wines in general directly damaged their sales. (Polygram Records Inc. v Superior Court (1985) 170 CA3d 543.)

And the defenses mentioned in our article on Intentional Interference with Prospective Business Advantage as to privilege, the First Amendment, etc. all equally apply to this cause of action and the reader is directed to that article.

Additionally, it must be emphasized that competitors have a conditional privilege to make favorable comparisons of their products with those of others; criticisms of a competitor’s product based on appeals to the personal taste or preference of buyers are privileged statements long protected by the courts. (Rosenberg v J.C. Penney Co. (1939) 30 CA 2d 609). That privilege is lost if the statements include false statements of purported facts and if the statements are made with malice or without good faith. (Rosenberg case, supra.)

Statute of Limitations

The Statute of Limitations (when suit must be brought) varies based on the underlying thing disparaged. Since it is normally an injury to property (business) the applicable statue is normally two years from date of wrongdoing. (CCP Section 339). However, if title to property is involved (leases; real estate in any manner) the statute of limitations can be three years. (CCP Section 338.)

Conclusion

Both injunctive relief and pecuniary damages are often available to the injured party and in remarkably extreme cases, punitive damages may lie. However, the normal reaction of a judge or jury is to favor free competition thus this tort is not an easy one to prove. Unless the plaintiff can find some written proof via internal memos or e mails or earlier correspondence sent to the defendant with the true facts sitting in defendant’s files, it can be both expensive and futile to plead this cause of action.

Thus this action is normally plead in conjunction with numerous others causes of action for business torts, discussed on this web site, which constitute the typical unfair competition torts, and the pattern of conduct before a judge or jury can often result in a jury being more willing to view the actions of the defendant with a jaundiced eye.

But this particular cause of action can be a powerful one if the right evidence is developed. Recall that it is often the public that is the real victim of the falsehoods, and the experienced litigator can make an excellent argument that the ultimate result of such falsehoods is to destroy competition by driving good products off the market by lies and innuendos.

“It is not we who are seeking to stop competition, Ladies and Gentlemen. We, ourselves, and you, eventually, are the victims of every business who abuses the rules of fair competition by lies and slanders. We welcome fair competition and will meet it head one. What we do not welcome is a pattern of unfair competition composed of carefully crafted and often devious falsehoods designed to remove competition by driving us out of business by means of cheating, fraud, and attacks on our integrity…”

Such closing arguments can have a tremendous influence on a jury who recalls personal experience of buying inferior products since the competition had been driven from the field by rapacious companies.

Defending such a claim requires the astute party to defend the concept of competition and indicate that the very act of bringing this cause of action by the plaintiff is an effort to stifle fair criticism and silence a competitor’s honest efforts to educate the customer. The action would not have been brought unless an untrue statement was made, but the intelligent defendant can still argue that it was an honest mistake, not a malicious one, and an honest mistake that anyone could have made.

These cases can be fascinating ones for the judges and juries but must be carefully considered from a cost benefit perspective by the business person considering bringing such an action. Anger and emotion must be set aside and an objective view of the business realities considered. One of our clients, wrongfully slandered, decided that “beating the bums” in the market place was her best move and concluded that litigation would not be an efficient way to do that. Another client, seeing sales slide due to claims of unhealthy ingredients, concluded that a public trial was not only emotionally satisfying, but a vital part of his campaign to save his business and did not halt his action until the defendant, shortly before trial, published a public apology and correction.

Each case is different as is each market and each business. But if, after careful consideration, the cost benefit seems worthwhile, this can be a cause of action of remarkable effectiveness.

Stimmel, Stimmel & Roeser

Founded in 1939, our law firm combines the ability to represent clients in domestic or international matters with the personal interaction with clients that is traditional to a long established law firm.